STATE OF NEW YORK
INSURANCE DEPARTMENT25 BEAVER STREET
NEW YORK, NEW YORK 10004

David A. Paterson
Governor

Eric R.
Dinallo
Superintendent

OGC Op. No. 08-12-01

The Office of General Counsel issued the following opinion on December 17, 2008, representing the position of the New York State Insurance Department.

Re: Clarification of OGC Opinion Number 08-04-07 (04/03/2008) regarding an insured's use of a credit card to pay the premium on an insurance policy

Questions Presented:

(1) May United States financial institutions other than insurers permit the use of credit cards to purchase their financial products?

(2) The inquirer seeks clarification regarding the following quote from the Insurance Department's Office of General Counsel (OGC) Opinion Number 08-04-07 (04/03/2008): "The company [insurer] could, however, limit credit card use to the payment of only a certain percentage of premiums, provided that the percentage is the same for all members of the same general class."

Conclusions:

(1) The Department will not opine on whether financial institutions outside the regulatory purview of the Department may use credit cards for payment for their "financial products". The inquirer may wish to consider directing that question to the primary regulators of such financial institutions.

(2) Office of General Counsel Opinion Number 08-04-07 (04/03/2008) did not provide analysis of what constitutes a class. But another OGC opinion makes clear that it is not premium paid that constitutes a class, but rather the applicants for and insureds under a particular insurance product.

Facts:

The inquirer states that he is a researcher working for an Insurance Association located in another country. In OGC Opinion Number 08-04-07 (04/03/2008) (hereinafter, "The 04/03/2008 OGC Opinion"), the Department responded to the inquirer’s previous inquiry regarding an insured's use of a credit card to pay a premium on an insurance policy. By way of follow-up, the inquirer asks about the acceptance of credit cards by financial institutions other than insurers.

In addition, the inquirer seeks an explanation of the following quote from the 04/03/2008 OGC Opinion: "The company [insurer] could, however, limit credit card use to the payment of only a certain percentage of premiums provided that the percentage is the same for all members of the same general class."

Analysis:

The inquirer’s first question asks about the acceptance of credit cards for transactions regulated by financial services regulators that are not insurance transactions. The 04/03/2008 OGC Opinion states: "An insurer does not have an obligation to accept use of a credit card by an insured to pay the premium on an insurance policy. However, the New York State Insurance Department . . . has long held that there is no prohibition in the New York State Insurance Law . . . against the use of a credit card to pay the premium on an insurance policy as long as there is no discrimination among members of the same general class."

The Department regulates persons and other entities engaged in the business of insurance, but it does not opine about whether financial institutions not regulated by the Department may accept credit cards for payment for their "financial products". The inquirer thus may wish to consider directing his first question to those regulators.

The inquirer’s second question asks for clarification of the following quote from the 04/03/2008 OGC Opinion: "The company [insurer] could, however, limit credit card use to the payment of only a certain percentage of premiums, provided the percentage is the same for all members of the same general class." The 04/03/2008 OGC Opinion started its analysis in relevant part as follows:

An insurer does not have an obligation to accept use of a credit card by an insured to pay the premium on an insurance policy. However, in interpreting the anti-rebating and anti-discrimination provisions of N.Y. Ins. Law § 2324 (McKinney 2006) and N.Y. Ins. Law § 4224 (McKinney 2007), the Department has long held that, while there is no prohibition in the Insurance Law against the use of a credit card by an insured to pay the premium on an insurance policy, an insurer or insurance agent or broker may not discriminate among members of the same general class.

The 04/03/2008 OGC Opinion did not provide analysis of what constitutes a class. However, OGC Opinion Number 01-06-21 (06/26/2001) amplifies the Department's position:

The Department has historically held that the method of premium payment is a benefit under the insurance policy. Therefore, where an insurer or agent agrees to accept payment by credit card, it cannot accept it from some insureds but not others when all parties are within the same general class. Thus, if an agency will make credit card payment available to insureds that finance their premiums, it must also make credit card payment available to insureds within the same general class that do not finance their premiums. However, the Department would not object to an agency limiting credit card use for the payment of only a certain percentage of premium provided that the same percentage applied to all members of the same general class (i.e., the acceptance of credit card payments for only 20% of the insurance premium, whether the premium is financed or not).

For further information, you may contact Senior Attorney Robert Freedman at the New York City office.